Hello,
I have a question regarding the hideously evil “One Big Cartel” (i.e. a cartel composed of all the firms in the country). In Man, Econ, and State, Rothbard points out that such a creature would be unable to perform economic calculation and thus would never arise in a free market. Rothbard states, “One big cartel would not be able rationally to allocate producers’ goods at all and hence could not avoid severe losses. Consequently, it could never really be established, and, if tried, would quickly break asunder.”
However, in Human Action, Mises states the following: "If one wants to call entrepreneurial action an application of the method of trial and error, one must not forget that the correct solution is easily recognizable as such; it is the emergence of a surplus of proceeds over costs. Profit tells the entrepreneur that the consumers approve of his ventures; loss, that they disapprove. The problem of socialist economic calculation is precisely this: that in the absence of market prices for the factors of production, a computation of profit or loss is not feasible.”
In other words, Mises says that that without economic calculation, one can not know whether one is profiting or not. The Big Cartel could not use economic calculation. How then would the One Big Cartel know that it was running “severe losses” as Rothbard states?
--Gabriel
How then would the One Big Cartel know that it was running “severe losses” as Rothbard states?
They wouldn't know which is the whole point I believe.
They would just plod along doing things the inefficient way because they have no yardstick to measure 'efficiency' until it all just stopped working one day. Kind of like those TV commercials where they drain all the oil out of a car and run it on a dyno until it seizes up, that's the One Big Cartel in bad car analogy...
So Rothbard is saying that the One Big Cartel would "quickly break asunder" because it would continually run losses without knowing it? Alright then, that makes sense.
Gabriel:So Rothbard is saying that the One Big Cartel would "quickly break asunder" because it would continually run losses without knowing it? Alright then, that makes sense.
No no, the monopolistic firm would still have price signals from many other industries to calculate value with. It knows what it makes from the sale of its goods and services, and it knows what it spends. But it would not be able to rationally allocate goods and serivices within itself. For example, a petroleum and gasoline cartel would have no price calculation to tell it the most effecient way of refining petroleum into gasoline. It would have no competing gasoline refineries to bid the price down. It would know the cost of refining gasoline the way they accomplish it, but no way to know whether or not its method is indicative of the best knowledge in society. I think the reasons are more Hayekian than Misesian, because Mises's critisisms were directed towards socialist economies without money, and money is clearly present inside large firms.
Grant: No no, the monopolistic firm would still have price signals from many other industries to calculate value with.
No no, the monopolistic firm would still have price signals from many other industries to calculate value with.
Rothbard defines "One Big Cartel" as a cartel composed of all firms. So there would be no external industries for the cartel to refer to.
Grant: I think the reasons are more Hayekian than Misesian, because Mises's critisisms were directed towards socialist economies without money, and money is clearly present inside large firms.
I think the reasons are more Hayekian than Misesian, because Mises's critisisms were directed towards socialist economies without money, and money is clearly present inside large firms.
Mises' criticisms were not merely directed at economies that did not use money. For example, both the market socialist solution and the "solve-all-the-equations" solution involve using money, but in Human Action Mises rejects those solutions as being just as impossible as the original "central planning without the use of money" proposal.
So one problem facing the cartel would be the problem that Mises expounded. The cartel would be unable to determine the opportunity costs of using any of the factors of production. Thus, it would have no way of knowing how it should should allocate resources. Not to mention it would also face the Hayekian knowledge problems you mention.